Matrix Blog

Archive for January, 2006

Methodless Enthusiasm From Innovative Bubbles

January 31, 2006 | 12:05 am | |

Daniel Gross wrote a brilliant article (as usual) in this month’s issue of Wired In Praise of Bubbles: Boom and bust cycles have always driven the US economy fostering innovation.

The premise of the article is that people associate them with sob stories, criminal activity and irrational investment behavior.

[Bubbles] tend to follow a painful cycle of boom, bust, hand-wringing, and abject humiliation. But there’s often another step at the end: innovation. Over the past 150 years, many bursting bubbles have paved the way for economic and cultural progress.

methodless enthusiasm was reborn as irrational exuberance

The result of creating too much capacity gives way to other innovations that would have not been possible. One of the exciting aspects of the recent real estate boom has been the redevelopment of urban areas (ie San Diego, New York City, Chicago, Boston. etc.) that would not have been possible during a flat housing period.

Daniel Gross concludes:

“The result has been a real, delayed boom. Put cheap data transmission and storage together with an exploding population of consumers willing to use the Net and you get eBay, Google, and Yahoo! Now come widespread laments that another bursting bubble is anon: real estate, genomics, China stocks, wireless Internet, you name it. Maybe so. But sometimes, a little methodless enthusiasm is precisely what an economy needs.”

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Trulia Flips The Switch And Does A Mash-Up On New York Real Estate

January 30, 2006 | 9:07 pm | |

Mash-ups have become exceedingly popular these days especially after Google placed its API (application programming interface) or “hooks” in the public domain to let innovative companies combine different sources of data to a create new effect. One of the best uses of the mash-up concept in real estate to date has been created by Trulia was created by Pete Flint and Sami Inkinen in the summer of 2004 while they were graduate students at Stanford University. Note: the Google founders also went to graduate school at Stanford. I had the pleasure of speaking with Sami at length at Brad Inman’s Real Estate Connect in New York this month.

Here’s some more information about the service and their philosophies.

Trulia is essentially a vertical application of a Google search.

I heard about Trulia last fall through word of mouth and have followed their popularity in California. I added a post about Trulia [Matrix] a few months ago. The concept was straightforward and the site seemed to place tremendous emphasis on simplicity. Their data feeds are from public web sites, not MLS systems since that information is proprietary.

New York seemed to be ripe for this type of service as a compliment to what already exists in the public domain because it culls together a variety of information into one web page. When Trulia decided to launch in New York, they came to my firm Miller Samuel as well as Property Shark to provide additional content for users. The result of this mash-up is a lot of data useful to potential homebuyers interspersed within the listing information being searched.

Trulia is not a real estate broker and in fact, has sought out cooperation with the brokerage community. They have positioned themselves as a way for brokers to leverage the exposure of the listings already placed out on the web, and not as competition. They make their money from online advertising.

Among my favorite features are being able to create an RSS feed so the user can see new listings that meet their search criteria as the become available. I also like being able to save custom searches and their listing stats are particularly useful. Rarely do new web service sites come along that I get excited about.

Taking Orders, Separating Mortgage Functions

January 30, 2006 | 11:37 am |

William Apgar, the former head of FHA said it is time to change the way appraisals are ordered in the article Unraveling th Pyramid [BrokerUniverse].

This article addresses the fundamental issue with appraisals today – the independence of the appraisal function. To paraphrase: Its so important that on Oct. 27, 2003 the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration, issued a Joint Statement that requires the separation between loan production, appraisal ordering, and the appraisal review function. In May 2005, the regulators again issued guidelines and warned that financial institutions may not understand the risk of aggressive lending standards.

To say that our mortgage system is unique would be an understatement. The American Dream of home ownership has become a reality for more people than anywhere on the globe. Lending money based on the securitization of loans backed by real estate has been the rock on which this phenomena has been built. Fundamental to this system is the fair, objective and unbiased valuation of the real estate that secures these loans and provides the confidence Americans have in the value of their home. For this reason the industry has created and depended upon a profession that has been central to our mortgage economy – the independent fee appraiser. This profession is wholly based on its separation from all others within the mortgage system. It cannot be tainted by self-interest or the desire of others to profit from a mortgage transaction. It is the cornerstone upon which the value of real estate is dependent. In fact, one of the key features of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 was to make certain that trained and certified licensed professionals completed the valuation process.

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Bubble Wrap Appreciation Day 2006

January 30, 2006 | 12:04 am |

Lets not be serious for a moment…

Well, its that time of year again, and all this talk about bubbles has got me yearning for a good piece of bubble-wrap to pop. After all, today is Bubble Wrap® Appreciation Day.

Being A Lighthouse: Now Is Not The Time For The NAR Hard Sell

January 30, 2006 | 12:02 am |

I think one of the biggest challenges NAR has faced in recent years has been its credibility with the statistics that they disseminate to the public, (which is perhaps even more critical as the market goes through whatever change you wish to label this). The NAR is one of the few organizations able to provide national housing statistics on a regular basis to the public. Over the years we have relied on this near monopoly of information to gain insight as to the direction of the real estate market. Of course we recognize that this is a trade group and its purpose is to look out for its membership. However, its not the statistics that are creating the gap, its the hard sell that goes along with it. Although one Realtor group has stopped sharing data, possibly due to the negative results it may show [Housing Bubble 2].

After seemingly being on cruise control for the past several years, the real estate market has showed signs of change. A credibility gap that has formed from the rising frequency of spin used by NAR in order to keep the public from a media-induced panic over housing. No one complained when the market was going up and records were broken nearly ever month and the NAR just piled on the euphoria. Now that the market has weakened, there is polarization between what the NAR says and what the public believes, despite their in-house experts. The proliferation of “bubble blogs” is a glaring sign of the cynicism of information that has been released to the public.

I pointed out the new word NAR was using to describe the housing market, “post-boom,” yet “anti-bubble” termed housing expansion in Fill In The Blank With The Latest Catchphrase: Housing “Expansion” [Matrix]. Did anyone at NAR actually look up the word expansion? The housing market is clearly not expanding.

Now last week’s existing home sales report predicts [pdf] that prices will increase 5% in 2006. Anyone care to take bets on that? We have a sputtering economy as evidenced by the latest GDP figures [Macroblog] prompting the Fed to telegraph it may ease its measured growth policy of raising short term rates, we have mortgage rates at higher levels (albeit not much) than they were a year ago, loan origination is projected to drop, we have speculators leaving the market and we have the highest increase in inventory in 20 years.

The Walkthrough blog just did a really cool analysis on the accuracy of NAR housing market predictions [Walkthrough]. The accuracy of the predictions of the number of existing home sales compared reality was basically 100%…wrong. Not just wrong. 4% to 14% each year plus 9% in the wrong direction. Throwing darts could probably be more accurate.

The NAR reached a new low last week using phrases like “Once again, the Chicken Littles came out of the henhouse shouting the “sky is falling” in their latest research update. [NAR]. How does that headline enhance their credibility as the authority on real estate with the public, besides their membership?

I would suggest that NAR continues to pump out their monthly housing stats with full disclosure on how they arrived at the figures (I think their info is generally pretty good) but back away from the need to hard sell that things are good. The facts will speak from themselves, good or bad, but taunting pessimists creates more distrust by the public.

Lose the hard sell.

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Closing The Faucet: Some Good-Faith Estimates

January 30, 2006 | 12:02 am |

In Kenneth R. Harney’s article A Good-Faith Effort To Clean Up Estimates [Washington Post] finally there is some good news on some costs associated with housing.

“It’s a distressingly familiar scenario for home buyers and refinancers, and it was one of the major mortgage-related consumer complaints to federal agencies in 2005: “good-faith estimates” of settlement costs that turn out to be hundreds, even thousands, of dollars off the mark.”

Federal housing officials are working on possible remedies, but here’s some unexpected good news: Mortgage lenders are, too. Growing numbers of them have gotten the message from their customers — we demand certainty about fees — and they are debuting new ways to turn their estimates into binding promises.

Harney mentions a few lenders that are seeing the importance of fixing the closing costs. Its sounds like a good idea. Lets hope its contagious.

These Days, Expect The Unexpected, Rather Than Existing

January 30, 2006 | 12:01 am |

The Commerce Department released their new home sale data on Friday and it showed an unexpected increase of 2.9% []. This was unexpected because December existing home sales information released by the NAR the day before had shown a 5.7% decline over the prior month.

However, existing home sales data is 45-60 days behind the market since it is based on closed sales data and new home data is based on units currently under contract. The December existing market data was influenced by rising mortgage rates, the effects of the two hurricanes, rising gasoline prices among other negative economic conditions back in October, and is not necessarily reflective of the current market.

It seems like every month these two statistical releases contradict each other, but perhaps that largley because they are based on different points in time and the market is in transition.

NAR Existing Home Sales [pdf]
Commerce Department New Home Sales [pdf]

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Real Estate: Extreme Interest Fosters Extreme Language

January 30, 2006 | 12:01 am | |

[Back From San Diego, Where The Weather Is Absolutely Perfect.]

Do you ever get the feeling that everything you read about the housing market is either optimistic or pessimistic?

In other words, if you find yourself devouring articles about the current real estate market, do you find yourself confused by alot of their conclusions?

I certainly do. One of the problems is the evolving language of real estate. No, not old-fashioned brokerspeak, but the language of real estate economics, which has been morphing into the cliche feel-good phrases many despise.

In Stephanie Rosenbloom’s fun article The Power of Words [NYT] she explores the erosion of real estate language (with a little help from me – especially since I am guilty of having used the word “pause” on occasion but never, ever “grand.”)

“[Buzzwords] are especially prevalent in New York, where residents routinely say that real estate is a topic second only to sex. And where there is extreme interest, there tends to be extreme language.”

Mud Spelled Backwards: Business 2.0’s List Of Dumbest Moments In Real Estate

January 26, 2006 | 6:56 pm | |

On the light and subjective side, here’s the real estate portion of Business 2.0’s 101 dumbest moments in business: Real estate. The year in shenanigans, skulduggery, and just plain stupidity in the world of housing [CNN/Money].

Of these real estate items, I think the most notable are:

Most Ironic
* Vail Board of Realtors can’t afford to be located in Vail: Unable to buy office space in a community where the average home price recently headed north of $4 million, the Aspen Board of Realtors heads north too — to Basalt, Colo., a town of 3,000 residents 20 miles away.

No Reason To Be On The List
* In November, New York developers William and Arthur Zeckendorf agree to pay $37 million for the air rights above a church and an 88-year-old private club. The Zeckendorfs’ purchase, part of a plan to build a 35-story apartment building that would tower over its neighbors on East 60th Street, comes out to a whopping $430 per square foot — two to four times the going rate for the skies above Manhattan. This seemed to shock only people outside of New York.

Most Amazing
* In May an Experian-Gallup national survey finds that 65 percent of Americans haven’t heard anything about a possible “housing bubble.” Another 12 percent have heard “only a little.” Indeed, 70 percent expect home prices to keep rising, while only 5 percent think they’ll slip. However, when the facets of a housing bubble are described to them, about 40 percent go on to say that the scenario is likely to occur in their area in the next three years.

Q: Why won’t we see a “List Of Smartest Moments In Real Estate?”

A: Because NO ONE is interested in seeing someone else succeed (aka boring) OR we simply enjoy seeing people screw up.

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[Commercial Grade] The Best And The Brightest

January 26, 2006 | 5:15 pm |

Webmaster’s Note: This is the first in a series of weekly posts by John Cicero, MAI who will provide commentary on issues affecting real estate appraisers, with specific focus on commercial valuation.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is one of the smartest guys I know.

We commercial guys like to think that we are sophisticated financial analystswe analyze real estate as an investment vehicle, similar to an equities or bond analyst would. We spend our days cash flow modeling wirh Argus and Dyna. Our training includes advanced capitalization theory, in order to understand the relationship between cap rates and yield rates, and we need to understand theories that, frankly, we’ll never use again (remember the J-factor and the Hoskold premise?). We analyze assets worth hundreds of millions of dollars, and advise clients on managing their real estate risk.

That’s why it’s particularly disheartening that, in these days of appraiser licensing, the state doesn’t quite know what to do with us. I recently went onto the New York State Department of Licensing web site and found the other “professions” that are similarly licensed:

Don’t get me wrong. I have the utmost respect for notary publics, cosmetologists and telemarketers, all of whom work hard to make an honest living. But if this is the public perception of the commercial real estate appraiser, I suspect that attracting bright and talented people to this field will continue to be a struggle.

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No Right To Copy

January 26, 2006 | 4:22 am |

In the Working RE article Appraiser Wins Copyright Suit: Now What?

“Tim Vining, MAI becomes the first appraiser in the U.S. to successfully sue and win for copyright infringement of his intellectual property his appraisal.

The culprit is a real estate broker who lifted Vining’s work for use in a sales brochure. According to Vining, who specializes in the appraisal of agricultural properties in Washington State, this was not the first time he found his work in reports that he did not author and for which he was not paid. This time he decided to do something about it.

What does this mean for the average appraiser? Firstly, this case means that appraisal reports can be copyrighted. It is easier to prove in a narrative format than on a form but it is possible.

What is very interesting is that the copyright fee does not have to be registered “to prove infringement and win an award.”

Statutory damages were not awarded in this case because “he had not registered his work with the Copyright Office within 90 days of creation. If a work is registered ($35 fee), statutory damages can be as high as $150,000 per occurrence plus attorneys fees and costs. “

Creative work, including appraisal reports, is protected at the moment of creation.

The article speculates that this would have an impact on AVMs if appraisers would register some of their reports with the Copyrright Office by “poisoning the well.” AVM’s would not know which data was protected.

This is a curious point for me as it relates to form reports that are farmed for their data without compensation. How would the appraiser be able to track this misuse or prove it was their data?

One of the long running issues on this topic has been whether the appraiser owns the data or not. I would conclude that once raw information is improved beyond what is available to the public, the appraiser owns the rights to the data. However, they give up certain rights to the data once they place it on an appraisal report and send it to a client. If the appraiser knows the their data is being farmed (nearly all appraisal data is being farmed or will be shortly), then I am not sure how the argument can be made that they have not given up their rights to it. However, this is unclear to me.

From my own experience, I am more concerned others copying the content that I have developed, not simply the data. I have had several incidents regarding plagiarism of my report presentation.

The first time this happened, it involved a market report that I write about the market I cover. Another firm (a brokerage firm), copied every single line of text in the report and just changed the names. I called them and sent them a note and got not response but they changed the content of their report gradually over subsequent issues.

On another occasion, I was asked to review an appraisal report in a matrimonial action that was completed for both parties. Once side was uncomfortable with the result and showed me the report. When I got to the addendum, I discovered that the appraiser had copied my 8 page addenda word for word, even using the same fonts and layout. The attorney relayed this information to the court and the appraisal report was thrown out. I was then hired by the court to perform the valuation. I sent the appraiser a “cease and desist” letter with the instruction that I was to get a written apology and assurances that it would not happen again. He did. So far he hasn’t.

Shortly after this incident, I ran across my work in another appraiser’s report and was going to contact him in the same manner. Before I called my attorney, I read that he was indicted along with a number of others for mortgage fraud. I believe he is now in jail.

A few years ago, my wife was reading our hometown paper and she called me at the office to tell me that it was my writing with the data changed. We contacted this company and they changed the format of their report but it still contains elements of my original work. I decided not to go after the broker since it was not in a market that I covered.

Someone once told me this quote, of which I scoffed at:

There is no such thing as original thought.

I am starting to believe this.

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In San Diego Where The Weather Is Not Frightful

January 26, 2006 | 4:20 am |

I am away at a conference this week so my posts are sporadic and limited. Next week I’ll be up to full speed again. But hey, good weather tends to do that to me. Here’s a screenshot from my laptop weather application: